Ethereum Whale dares not to move! TVL big dump 27.5 billion, financing Interest Rate drop to zero shocks the market.

The price of Ethereum has risen 15% from last Friday's low of $2,623, but derivatives indicators show that traders remain cautious. Since the beginning of the week, demand for leveraged go long Ethereum positions has been almost zero, and the perpetual futures funding rate is close to zero, whereas it should normally be between 6% and 12%. According to DefiLlama data, the total value locked (TVL) in Ethereum has dropped to $72.3 billion, a big dump of $27.5 billion compared to the end of October.

October flash crash hits confidence, financing interest rate returns to zero

(Source: Laevitas)

Since Monday, the demand for leveraged long positions in Ether (ETH) has been almost zero, and the perpetual futures financing rate confirms this. Normally, this rate should be between 6% and 12% to offset capital costs. However, a large part of the current market hesitation is due to the uncertainty following the October flash crash event. On October 10, the price of Ethereum fell by 20%, triggering massive liquidations on centralized and decentralized trading platforms, severely impacting traders' confidence.

The financing interest rate close to zero means that traders going long on Ether hardly need to pay holding costs, which should be an extremely attractive condition in a normal market environment. However, even under such favorable conditions, the demand for leveraged long positions remains sluggish, indicating that traders are extremely lacking in confidence regarding the short-term trend of Ethereum. This situation is rare in Ethereum's history, typically only occurring during extreme market panic or when the trend clearly turns bearish.

(Source: Nansen)

The 20% big dump on October 10 was the direct trigger of this confidence crisis. That flash crash not only caused billions of dollars in liquidation losses but, more importantly, destroyed traders' confidence in the stability of Ethereum prices. Many leveraged bulls were forced to liquidate during that big dump, suffering heavy losses. This traumatic experience has made the surviving traders extremely cautious when re-establishing leveraged long positions.

The Significance of the Perpetual Futures Financing Rate

Normal Level: 6% to 12% annualized, indicating healthy go long demand

Current level: Close to 0%, indicating that the demand for going long has almost disappeared.

Negative Interest Rate: Short sellers need to pay long holders, indicating that bearish sentiment is dominant.

Zero Financing Interest Rate: The market is cautious, with both bulls and bears unwilling to establish large positions.

From a deeper perspective, the zeroing of financing interest rates may reflect the market's concerns about Ethereum's fundamentals. Although the price has rebounded 15% from its low, this rebound lacks support from the derivatives market, suggesting it may only be a technical rebound or a short-term oversold rebound, rather than the beginning of a trend reversal. Without the support of leveraged funds, the sustainability and strength of the rebound will be limited.

TVL big dump 27.5 billion USD creates negative feedback loop

According to DefiLlama's data, the total value locked in the Ethereum network has dropped from $99.8 billion on October 9 to $72.3 billion. The decrease in deposits has further exacerbated the downward pressure on Ether prices, as investors prepare for weak demand. The loss of $27.5 billion in TVL corresponds to a loss of about 27.6% in locked value, which is a significant capital outflow in the DeFi market.

The decline in TVL will create a negative feedback loop. When funds are withdrawn from Ethereum DeFi protocols, both the liquidity and yield of the protocols will decrease, which in turn will attract more users to withdraw their investments in search of higher-yield alternatives. Furthermore, the decrease in TVL will also reduce the usage of the Ethereum network, decrease transaction demand and Gas fees, thereby affecting the amount of ETH burned and the deflationary effect.

The Ethereum EIP-1559 upgrade introduced a Gas fee burning mechanism, which theoretically could make ETH a deflationary asset during times of high network usage. However, when network activity declines, the amount burned decreases, and the issuance of ETH may exceed the amount burned, reverting it back to an inflationary asset. This transition from deflation to inflation can negatively impact the confidence of long-term holders.

Despite the trading volume remaining stable, Ethereum network fees have decreased by 13% in the past week. This divergence has raised concerns among investors that a reduction in network deposits could create a negative feedback loop, ultimately leading to a fall in ETH prices. Stable trading volume but declining fees may indicate a shift in trading structure, with more transactions moving to Layer 2 solutions or other chains, while the usage intensity of the mainnet decreases.

The weakness of this online activity not only affects prices but also reflects the competitive pressure on the Ethereum ecosystem. Competing chains like Solana, Base, and Arbitrum are attracting more and more users and developers, while Ethereum's market share is being eroded. If this trend continues, Ethereum's long-term value proposition may be called into question.

Top traders long-short ratio shows whales are bearish

The top traders on OKX have reduced their long exposure to Ethereum after consolidating their spot, futures, and margin positions. Currently, the long-short ratio shows that short positions account for 23%. More importantly, whales and market makers have repeatedly failed to maintain effective long leverage, indicating a clear lack of confidence.

Top traders are usually the most professional and well-informed group in the market, and their position directions often serve as leading indicators. When these traders collectively turn bearish or reduce their long positions, it often signals a significant change in market trends. A 23% short position is not considered extreme in a normal market, but combined with other indicators such as zero financing interest rates and declining TVL, this figure appears more pessimistic.

Whales and market makers have repeatedly failed to maintain effective long leverage, a detail that is particularly noteworthy. This means that these large participants had attempted to go long on Ethereum but ultimately chose to close positions or reduce their holdings. This behavior may reflect their discovery of insufficient market depth, weak buying support, or a loss of confidence in the short-term trend based on certain internal information during actual trading.

The soft US labor market weakens demand for risk assets

(Source: Federal Reserve)

Another reason causing anxiety among Ethereum traders is the weak job market in the United States. According to Yahoo Finance, some companies are blaming layoffs on rising operating costs, while the U.S. government shutdown continues until November 12, leading to a decline in consumer spending. Reuters reported that U.S.-based companies announced layoffs of more than 25,000 people in November.

According to reports, Adam Sarhan, CEO of New York 50 Park Investments, stated, “There won't be large-scale layoffs when the economy is strong.” If layoffs accelerate, it could further undermine consumer confidence and put pressure on risk assets, including Ethereum. The U.S. government must continually increase debt to sustain economic growth, as fiscal revenues are slowing and costs are rising faster than economic growth momentum.

Despite the weak labor market environment impacting market sentiment, economic weakness may also prompt the Federal Reserve to adopt a more accommodative monetary policy stance. Additionally, following the reversal of the economic activity slowdown triggered by the U.S. government shutdown that ended on November 12, risk aversion has eased. Historically, cryptocurrencies have benefited from such market environments; however, the current uncertainty regarding the U.S. employment situation continues to undermine trader confidence.

Before major central banks inject new liquidity to support global economic growth, whether Ethereum can return to $4,000 remains uncertain. Currently, investors seem to be more focused on tech stocks and the bond market, which limits the short-term upside potential for Ethereum. Traders are waiting for clearer circumstances and need new liquidity to rebuild confidence in Ethereum's recent price increase.